The Railway Budget is a ceremonial legacy of the British Raj. As many observers have pointed out, there is little need for the Indian Railways (IR), even though it's a large organisation, to have a separate Budget. Fare and freight rises can occur at any time. The audited accounts of the huge transport behemoth could also be presented any time, without any necessity for the grandstanding of a Budget. Policy changes could also be notified any time.
However, the exercise does provide a window to market sentiment, two trading sessions before the Budget. The past few years, the railway Budget session and the few sessions prior have seen similar trading patterns. Stocks, which could potentially gain from IR policy changes, have seen bull runs in the preceding sessions. On the IR Budget itself, there has been large sell-offs in those stocks and the negative change in sentiment has somewhat affected the broader market as well.
This year was expected to be somewhat different. The IR had been allowed to hike fares after years of populist mismanagement drove it to the edge of ruin. There were murmurs about possible policy changes. However, as usual, the market was disappointed with concrete proposals.
The new government wants to follow through on various proposals to induct more FDI in various places, to outsource more in the way of non-core functions (such as cleaning stations) and to push on marque projects like fast "bullet" trains. There are also some attempts to spruce up customer-facing services. The IR may not get very enthusiastic responses from private entrepreneurs even if it says it wants more private participation. At heart, the IR is a government department that moreover, faces monstrous political interference.
When it comes to designing agreements with any private entrepreneur in a joint venture of any type, the IR is the senior partner. It also sets the financial terms - the price or tariff, as the case may be. It is also the arbitrator in case of any dispute.
Private enterprise has reason to be extremely wary of such arrangements where the same entity is playing roles with such inherent conflicts of interest. If the IR found a way to put independent regulators in place, it would stand a better chance of attracting capital. In the absence of such independent regulators, it may be difficult to attract capital.
Rail projects where capital have come in, have tended to be detached from IR's centralised control. For example, there has been successful cooperation in several port connectivity projects. Sundry metro projects across many cities have also seen progress and in most cases, private agencies and state government agencies are involved at several levels. The two dedicated freight corridors again involve many agencies. In each case, the project has a specific management team.
These are major problems that the IR has to "solve" if it actually wants to induct private capital, (FDI or domestic). It cannot be partner, operator and regulator, all at the same time. It also has to stop thinking like a government department that is oriented to keeping the political establishment happy and focus on the task of providing satisfaction to its millions of customers.
The author is a technical and equity analyst
